Starr International Co., Inc. v. United States

United States Court of Appeals, Federal Circuit

May 9, 2017

STARR INTERNATIONAL COMPANY, INC., IN ITS OWN RIGHT AND ON BEHALF OF TWO CLASSES OF OTHERS SIMILARLY SITUATED, Plaintiff-Appellantv.UNITED STATES, Defendant-Cross-Appellant AMERICAN INTERNATIONAL GROUP, INC., Defendant

Appeals
from the United States Court of Federal Claims in No.
1:11-cv-00779-TCW, Judge Thomas C. Wheeler.

Around
September 2008, in the midst of one of the worst financial
crises of the last century, American International Group,
Inc. ("AIG") was on the brink of bankruptcy and
sought emergency financing. The Federal Reserve Bank of New
York ("FRBNY') granted AIG an $85 billion loan, the
largest such loan to date. Central to this case, the United
States ("Government") received a majority stake in
AIG's equity under the loan, which the Government
eventually converted into common stock and sold.

One of
AIG's largest shareholders, Starr International Co., Inc.
("Starr"), filed this suit alleging that the
Government's acquisition of AIG equity and subsequent
actions relating to a reverse stock split were unlawful. The
U.S. Court of Federal Claims ("Claims Court") held
a trial on Starr's direct claims, for which Starr sought
over $20 billion in relief on behalf of itself and other
shareholders. The Claims Court ultimately held that the
Government's acquisition of AIG equity constituted an
illegal exaction in violation of § 13(3) of the Federal
Reserve Act, 12 U.S.C. § 343, but declined to grant
relief for either that adjudged illegal exaction or for
Starr's reverse-stock-split claims. Starr appeals the
denial of direct relief for its claims. The Government
cross-appeals, arguing that Starr lacks standing to pursue
its equity-acquisition claims directly or, alternatively,
that the Government's acquisition of equity did not
constitute an illegal exaction.

We
conclude that Starr and the shareholders represented by Starr
lack standing to pursue the equity-acquisition claims
directly, as those claims belong exclusively to AIG. Because
this determination disposes of the equity-acquisition claims,
the other issues regarding the merits of those claims are
rendered moot. We also conclude that the Claims Court did not
err in denying relief for Starr's reverse-stock-split
claims.

We
therefore vacate the Claims Court's judgment that the
Government committed an illegal exaction and remand with
instructions to dismiss the equity-acquisition claims that
seek direct relief. We affirm the judgment as to the denial
of direct relief for the reverse-stock-split claims.

The
2008 financial crisis exposed many of the major financial
institutions in the United States to substantial liquidity
risks. AIG was no exception.

This
case relates to injuries that the Government allegedly
inflicted on AIG and its shareholders, including Starr, in
the process of saving AIG from bankruptcy.

A

AIG is
a publicly traded corporation with various insurance and
financial services businesses. Around 2007, it experienced a
deteriorating financial condition due in part to a collapse
of the housing market. Leading up to the 2008 financial
crisis, AIG had become a major participant in various
derivatives markets, including by guaranteeing a portfolio of
credit-default-swaps ("CDSs") sold by one of its
subsidiaries. These CDSs functioned like insurance policies
for counterparties holding debt obligations, which in turn
were often backed by subprime mortgages. When the value of
mortgage-related assets declined during the 2008 financial
crisis, counterparties demanded that AIG post additional cash
collateral pursuant to terms of the CDSs or, in the event of
a default, pay any remaining positions. By September 2008,
AIG was also facing other financial challenges, including
increased fund returns from securities lending, a significant
decline in its stock price, the prospect of downgraded credit
ratings, and difficulty obtaining additional funding. These
factors contributed to mounting stress on AIG's
liquidity.

The
situation came to a head on Friday, September 12, 2008, when
AIG informed the FRBNY that it had urgent liquidity needs
estimated between $13 billion-$18 billion.[2] Over the weekend
of September 13-14, AIG's liquidity needs ballooned to
$45 billion, then to over $75 billion, threatening its very
survival. On the morning of Monday, September 15, another
major financial institution, Lehman Brothers, filed for
bankruptcy, which made obtaining private funding even more
difficult.

By the
following day, the FRBNY-realizing that an AIG bankruptcy
could have destabilizing consequences on other financial
institutions and the economy-invoked § 13(3) of the
Federal Reserve Act (or "the Act"), 12 U.S.C.
§ 343. That statutory provision allows the Federal
Reserve Board, "[i]n unusual and exigent circumstances,
" to authorize a Federal Reserve Bank to provide an
interest-bearing loan to a qualifying entity, "subject
to such limitations, restrictions, and regulations as the
[Federal Reserve Board] may prescribe." 12 U.S.C. §
343. Specifically, an entity receiving such loan must
"indorse[] or otherwise secure[] [the loan] to the
satisfaction of the Federal reserve bank" and show that
it "is unable to secure adequate credit accommodations
from other banking institutions."[3]Id.

The
Federal Reserve Board quickly approved a Term Sheet for an
$85 billion loan under § 13(3) of the Act. In addition
to setting forth an interest rate and various fees, the Term
Sheet provided that the FRBNY would receive 79.9% equity in
AIG.

That
same day, September 16, AIG's Board of Directors
("AIG Board") met to consider the proposed Term
Sheet. They discussed the pros and cons of accepting the
loan, including the equity term. AIG's Chief Executive
Officer ("CEO") at the time, Robert Willumstad,
also conveyed to them "that the Secretary of the
Treasury had informed him that as a condition to the [loan,
he] would be replaced as [CEO]." J.A. 200031. According
to the meeting minutes, all but one of the Directors
expressed the view "that despite the unfavorable terms
of the [loan, it] was the better alternative to bankruptcy
for [AIG]." J.A. 200038. Over the single dissenting
Director, the Board voted to approve the Term Sheet. The
FRBNY then advanced money to AIG for its immediate liquidity
needs, and Mr. Willumstad was replaced as CEO.

On
September 22, 2008, AIG entered into a Credit Agreement
memorializing the terms of the loan. The Agreement specified
that the Government, through "a new trust established
for the benefit of the United States Treasury"
("the Trust"), would receive the 79.9% equity in
the form of preferred stock that would be convertible into
common stock. J.A. 200212. This was the agreement through
which the Government acquired AIG equity.[4]The recited
consideration for the equity was "$500, 000 plus the
lending commitment of [the FRBNY]." J.A. 200212. AIG
issued the convertible preferred stock and placed it in the
Trust in 2009.[5]

The $85
billion loan was, and remains, the largest § 13(3) loan
ever granted. It is also the only instance in which the
Government obtained equity as part of a § 13(3) loan.

At this
time, AIG's common stock was listed on the New York Stock
Exchange ("NYSE"). In the latter part of 2008,
AIG's stock sometimes dipped below $5.00 per share,
prompting the NYSE to remind AIG that the NYSE had a minimum
share-price requirement of $1.00 per share. The NYSE advised
that it would delist stocks that failed to meet the
$1.00-per-share requirement after June 30, 2009. By early
2009, AIG's common stock was occasionally closing below
$1.00 per share and was therefore at risk of being delisted.

On June
30, 2009, the same day as the NYSE deadline, AIG held an
annual shareholder meeting at which shareholders voted on a
number of proposals to amend AIG's Restated Certificate
of Incorporation. In relevant part, the AIG Board advised
shareholders to approve two proposed amendments that would
alter the pool of AIG common stock. The first proposed
amendment required approval by a majority of the common
shareholders (which excluded the Government at the time
because it held preferred stock) and would nearly double the
amount of authorized common stock from five billion shares to
9.225 billion shares. The proxy statement explained that this
increase would "provide the [AIG] Board . . . the
ability to opportunistically raise capital, reduce debt and
engage in other transactions the [AIG] Board . . . deems
beneficial to AIG and its shareholders." J.A. 201112.

The
second proposed amendment was subject to a wider shareholder
vote and would implement a reverse stock split at a ratio of
1:20 but would only affect the three billion issued shares
out of the five billion authorized shares of common stock.
The proxy statement asserted that "[t]he primary purpose
of the reverse stock split [was] to increase the per share
trading price of AIG Common Stock" and, accordingly,
"help ensure the continued listing of AIG Common Stock
on the NYSE." J.A. 201113.

The
first proposed amendment, to increase the total amount of
authorized common stock, failed to pass. But a majority of
shareholders, including Starr, approved the second proposed
amendment toward a 1:20 reverse stock split of the issued
common stock. As a result, the amount of AIG issued common
stock decreased from approximately three billion shares to
approximately 150 million shares, while the total amount of
authorized common stock remained at five billion shares. This
solution avoided NYSE delisting. It also made available
enough unissued shares of common stock (approximately 4.85
billion shares, i.e., over 79.9% of AIG authorized common
stock) to allow the Government to convert all of its
preferred stock in AIG to common stock.

More
than a year later, in 2011, the Government did just that,
converting its 79.9% equity from preferred stock to more than
562 million shares of AIG common stock as part of a
restructuring agreement with AIG. Then, between May 2011 and
December 2012, the Government sold all of those shares of
common stock for a gain of at least $17.6 billion.

Starr
is a privately held Panama corporation with its principal
place of business in Switzerland and was one of the largest
shareholders of AIG common stock at all times relevant to
this case. Its Chairman and controlling shareholder is
Maurice Greenberg, who served as CEO of AIG until 2005.

In
2011, Starr filed the underlying suit in the Claims Court
against the Government.[6] Starr recognizes that the § 13(3)
loan to AIG was "ostensibly designed to protect the
United States economy and rescue the country's financial
system" but alleges that the Government used
"unlawful means" in what "amounted to an
attempt to 'steal the business.'" J.A. 502253,
502257.

Starr
asserted claims directly-on behalf of itself and similarly
situated shareholders-for individual relief. It also asserted
claims derivatively, on behalf of AIG, for relief that would
flow to the corporation. The Claims Court joined nominal
defendant AIG as a necessary party for the derivative claims
under United States Court of Federal Claims Rule
("RCFC") 19(a). See Starr Int'l Co. v.
United States ("Starr 7"), 103 Fed.Cl. 287
(2012). The Claims Court also certified two classes of
shareholders and appointed Starr as the representative for
both classes: (1) the Credit Agreement Class (generally,
shareholders of AIG common stock from September 16-22, 2008,
when AIG agreed to the Term Sheet and the Credit Agreement);
and (2) the Stock Split Class (generally, shareholders of AIG
common stock as of June 30, 2009, the date of the
reverse-stock-split vote).[7]Starr Int'l Co. v. United
States ("Starr III'), 109 Fed.Cl. 628, 636-37
(2013).

In
2013, the trial court dismissed Starr's derivative claims
after the AIG Board refused Starr's demand to pursue
litigation.[8]Starr Int'l Co. v. United States
("Starr IV), 111 Fed.Cl. 459, 480 (2013). Starr
does not appeal the dismissal of those derivative claims. Our
discussion therefore focuses on the claims that Starr, on
behalf of itself and the two shareholder classes, continues
to press for direct relief.

1

There
are two sets of claims corresponding to the various events
surrounding the § 13(3) loan to AIG: (1) the
"Equity Claims" brought by the Credit Agreement
Class and Starr relating to the Government's acquisition
of 79.9% of AIG equity; and (2) the "Stock Split
Claims" brought by the Stock Split Class and Starr
relating to the 1:20 reverse stock split. Hereinafter,
references to Starr include the Credit Agreement Class and
the Stock Split Class when discussing their respective
claims.

With
respect to the Equity Claims, Starr maintains that the
Government's acquisition of 79.9% of AIG's equity was
an illegal exaction because the Federal Reserve Act does not
authorize the Government to take equity in a corporation as
part of a § 13(3) loan. Starr also asserts, in the
alternative, that the Government's equity acquisition was
a Fifth Amendment taking without just compensation and a
violation of the unconstitutional conditions
doctrine.[9]

Separately,
through the Stock Split Claims, Starr alleges injuries from
the 1:20 reverse stock split. Even though the proxy statement
noted that the reverse stock split was aimed at avoiding NYSE
delisting, Starr assigns it a more nefarious intent.
According to Starr, the Government wanted to increase the
relative amount of AIG's unissued common stock to above
79.9% so that it could convert all of its preferred stock
into common stock. The Government allegedly foresaw that the
proposed amendment to increase the total amount of authorized
AIG common stock (including unissued shares) would not pass a
common shareholder vote-a vote that the Government did not
control-so it "deliberately engineered" the reverse
stock split to guarantee a decrease in the number of issued
shares, which would result in a corresponding increase in the
proportion of unissued shares to over 79.9%. J.A. 502327.
Starr alleges that this scheme completed the Government's
taking of shareholder interests and "deprive[d] [Starr]
of its right to block further dilution of its interests in
AIG." Appellant's Opening Br. 58.[10]

2

The
Claims Court allowed Starr to proceed to trial on the claims
that Starr had asserted directly. In relevant part, the court
determined at the pleading stage that "Starr has
standing to challenge the FRBNY's compliance with Section
13(3) of the [Act]." Starr Int'l Co. v. United
States CStarr IT'), 106 Fed.Cl. 50, 62 (2012). It
later reaffirmed its ruling on direct standing despite new
developments asserted by the Government. Starr IV,
111 Fed.Cl. at 481-82. The Government moved to certify the
question of direct standing for interlocutory appeal, but the
trial court denied that motion, in part, to develop a
"full evidentiary record" on the issue. Starr
Int'l Co. v. United States ("Starr V), 112
Fed.Cl. 601, 605-06 (2013). The trial court did not, however,
revisit the question of standing after trial, noting only
that it "ha[d] addressed a number of jurisdictional and
standing questions at earlier stages of th[e] case."
Starr VI, 121 Fed.Cl. at 463.

On the
Government's motion, the Claims Court dismissed
Starr's unconstitutional conditions claim.[11]Starr
II, 106 Fed.Cl. at 83. The Claims Court then proceeded
to a thirty-seven-day trial on the remaining claims, all of
which sought direct shareholder relief.

Following
trial, the court held that the Government's acquisition
of AIG equity was not permitted under the Federal Reserve Act
and was therefore an illegal exaction. Starr VI, 121
Fed.Cl. at 466. The court, however, declined to grant Starr
any monetary relief for the adjudged illegal exaction, on the
ground that "the value of the shareholders['] common
stock would have been zero" absent the § 13(3)
loan. Id. at 474. The court found that Starr was
actually helped, rather than harmed, by the Government
because by extending the $85 billion loan to AIG, "the
Government significantly enhanced the value of the AIG
shareholders' stock."[12]Id.

The
court further denied relief for the Stock Split Claims,
finding that the primary purpose for the reverse stock split
was to avoid delisting by the NYSE, not to avoid a
shareholder vote as Starr had alleged. Id. at
455-56.

Starr
and the Government cross-appeal from the judgment of the
Claims Court. We have jurisdiction over these appeals
pursuant to 28 U.S.C. § 1295(a)(3).

II.
Discussion

Starr
argues with respect to the Equity Claims that the trial court
erred in denying monetary relief for an illegal exaction and,
alternatively, in dismissing its unconstitutional conditions
claim.[13] Starr separately argues that the trial
court erred in denying relief for its Stock Split Claims.

The
Government contends that Starr lacks standing to pursue the
Equity Claims on behalf of itself and other shareholders
because those claims are exclusively derivative and belong to
AIG. Alternatively, the Government asks us to reverse the
trial court's conclusion that the equity acquisition was
an illegal exaction vis-a-vis Starr.

We
review the Claims Court's conclusions of law, including
that of standing, de novo. Norman v. United States,429 F.3d 1081, 1087 (Fed. Cir. 2005). We review any factual
findings, including those underlying the standing analysis
and the denial of relief for the Stock Split Claims, for
clear error. Id.; Weeks Marine, Inc. v. United
States,575 F.3d 1352, 1359 (Fed. Cir. 2009).

Before
we can address the merits of Starr's claims, we consider
whether Starr has standing to pursue those claims directly,
on behalf of itself and other shareholders. See Castle v.
United States,301 F.3d 1328, 1337 (Fed. Cir. 2002)
("Standing is a threshold jurisdictional issue[] . . .
and therefore may be decided without addressing the merits of
a determination.")- For the reasons below, we conclude
that it does not have direct standing to pursue the Equity
Claims. Accordingly, we have no occasion in this case to
address whether the Government's acquisition of AIG
equity was an illegal exaction; what damages, if any, would
attach; and whether the unconstitutional conditions doctrine
has any applicability in this case.[14]We do, however, address
the merits of Starr's appeal with respect to the Stock
Split Claims.[15]

A

"Federal
courts are not courts of general jurisdiction; they have only
the power that is authorized by Article III of the
Constitution and the statutes enacted by Congress pursuant
thereto." Bender v. Williamsport Area Sch.
Dist.,475 U.S. 534, 541 (1986). In keeping with this
principle, the doctrine of standing "serv[es] to
identify those disputes which are appropriately resolved
through the judicial process." Whitmore v.
Arkansas,495 U.S. 149, 155 (1990). The Claims Court,
"though an Article I court, applies the same standing
requirements enforced by other federal courts created under
Article III." Anderson v. United States, 344
F.3d 1343, 1350 n.l (Fed. Cir. 2003) (citation omitted). The
plaintiff bears the burden of showing standing, and because
standing is "an indispensable part of the plaintiffs
case, each element must be supported in the same way as any
other matter on which the plaintiff bears the burden of
proof, i.e., with the manner and degree of evidence
required at the successive stages of the litigation."
Lujan v. Defenders of Wildlife,504 U.S. 555,
561(1992).

For a
party to have standing, it must satisfy constitutional
requirements and also demonstrate that it is not raising a
third party's legal rights. Kowalski v. Tesmer,543 U.S. 125, 128-29 (2004). Unless otherwise noted below, we
assume arguendo-as the parties do-that Starr has satisfied
the requirements of constitutional standing derived from
Article III, namely: (1) an "actual or imminent"
injury-in-fact that is "concrete and
particularized"; (2) a "causal connection between
the injury and the conduct complained of; and (3)
"likely[] ... redress [ability] by a favorable
decision." Lujan, 504 U.S. at 560-61 (internal
quotation marks omitted). We focus, instead, on the
third-party standing requirement. The Concurrence faults us
for not addressing constitutional standing first, but
"[i]t is hardly novel for a federal court to choose
among threshold grounds for denying audience to a case on the
merits."[16]Ruhrgas, 526 U.S. at 585;
see,e.g., Kowalski, 543 U.S. at 129
(assuming Article III standing to "address the
alternative threshold question" of third-party
standing).

The
Supreme Court has historically referred to the principle of
third-party standing as a "prudential" principle:
"that a party 'generally must assert his own legal
rights and interests, and cannot rest his claim to relief on
the legal rights or interests of third
parties.'"[17]Kowalski, 543 U.S. at 129
(quoting Warth v. Seldin,422 U.S. 490, 499 (1975));
see also Franchise Tax Bd. of Cat. v. Alcan Aluminum
Ltd.,493 U.S. 331, 336 (1990) (calling the limitation a
"longstanding equitable restriction"). This
principle of third-party standing "limit[s] access to
the federal courts to those litigants best suited to assert a
particular claim."[18]Gladstone, Realtors v. Village of
Bellwood,441 U.S. 91, 100 (1979). It also recognizes
that, as is the case here, the third-party right-holder may
not in fact wish to assert the claim in question. See
Singleton v. Wulff428 U.S. 106, 116 (1976)
(distinguishing from a third-party's inability to assert
a claim).

Starr
submits that it satisfies the third-party standing principle
because the Government's acquisition of equity harmed
Starr's personal "economic and voting interests in
AIG, " independent of any harm to AIG. Appellant's
Resp. & Reply Br. 24. The Government submits that this
case presents "classic derivative claim[s]" that
belong exclusively to AIG. Oral Argument 33:13-33:24.

Because
Starr presses the Equity Claims under federal law, federal
law dictates whether Starr has direct standing. Cf Kamen
v. Kemper Fin. Servs., Inc.,500 U.S. 90, 97 (1991)
("[A]ny common law rule necessary to effectuate a
private cause of action ... is necessarily federal in
character."); see also Wright & Miller et
al., Federal Practice & Procedure § 1821 ("[I]n
suits in which the rights being sued upon stem from federal
law, federal law will control the issue whether the action is
derivative."). But as the parties recognize, the law of
Delaware, where AIG is incorporated, also plays a role.
See Government's Principal & Resp. Br. 31
(stating that "[t]he principles for distinguishing
direct from derivative claims are well-established and
consistent across federal and state law" and applying
Delaware law); Appellant's Resp. & Reply Br. 24,
26-31 (applying Delaware law for distinguishing between
direct and derivative claims).

In the
context of shareholder actions, both federal law and Delaware
law distinguish between derivative and direct actions based
on whether the corporation or the shareholder, respectively,
has a direct interest in the cause of action. Under federal
law, the shareholder standing rule "generally prohibits
shareholders from initiating actions to enforce the rights of
[a] corporation unless the corporation's management has
refused to pursue the same action for reasons other than
good-faith business judgment." Franchise Tax
Bd., 493 U.S. at 336. Only "shareholders] with a
direct, personal interest in a cause of action, " rather
than "injuries [that] are entirely derivative of their
ownership interests" in a corporation, can bring actions
directly. Id. at 336-37.

Under
Delaware law, whether a shareholder's claim is derivative
or direct depends on the answers to two questions: "(1)
who suffered the alleged harm (the corporation or the suing
stockholders, individually); and (2) who would receive the
benefit of any recovery or other remedy (the corporation or
the stockholders, individually)?" Tooley v.
Donaldson, Lufkin & Jenrette, Inc.,845 A.2d 1031,
1033 (Del. 2004) (en banc). To be direct, a claim need not be
based on a shareholder injury that is "separate and
distinct from that suffered by other stockholders."
Id. at 1035 (internal quotation marks omitted). A
claim may be direct even if "all stockholders are
equally affected." Id. at 1038-39.

There
exists a "presumption that state law should be
incorporated into federal common law" unless doing so in
a particular context "would frustrate specific
objectives of the federal programs." Kamen, 500
U.S. at 98. And this presumption "is particularly strong
in areas in which private parties have entered legal
relationships with the expectation that their rights and
obligations would be governed by state-law standards."
Id. Relevant here, the Supreme Court has observed
that "[c]orporation law is one such area." Id.;
see also Burks v. Lasher,441 U.S. 471, 478 (1979)
("Congress has never indicated that the entire corpus of
state corporation law is to be replaced simply because a
plaintiffs cause of action is based upon a federal
statute."). Delaware law is consistent with, and does
not frustrate, the third-party standing principle under
federal law. See Kowalski, 543 U.S. at 130 (stating
that "a party seeking third-party standing" must
show a "'close' relationship with the person who
possesses the right" and a "'hindrance' to
the possessor's ability to protect his own
interests"); Franchise Tax Bd., 493 U.S. at 336
(setting forth the shareholder standing rule). Accordingly,
Delaware law is applicable to the question of whether the
Equity Claims are direct in nature.

Although
Starr claims that it was directly affected by the
Government's acquisition of equity, its alleged injuries
require first showing that AIG was either "caused to
overpay for [the loan] that it received in exchange" for
newly issued stock or forced to issue that stock without any
legal basis whatsoever. Gentile v. Rossette, 906
A.2d 91, 99 (Del. 2006). Typically, "claims of corporate
overpayment are treated as causing harm solely to the
corporation and, thus, are regarded as derivative."
Id. "Such claims are not normally regarded as
direct, because any dilution in value of the
corporation's stock is merely the unavoidable result
(from an accounting standpoint) of the reduction in the value
of the entire corporate entity, of which each share of equity
represents an equal fraction." Id. The proper
remedy for such harms usually goes to the corporation as
"a restoration of the improperly reduced value."
Id.

The
injuries that Starr alleges with respect to the
Government's acquisition of AIG equity are therefore
quintessentially "dependent on an injury to the
corporation, " and any remedy would flow to AIG.
Tooley, 845 A.2d at 1036. Absent an applicable
recognition under federal or Delaware law that Starr's
alleged injuries give rise to a direct cause of action, the
Equity Claims would be exclusively derivative in nature.

We make
a couple of observations at the outset to provide context to
our discussion. We then proceed to address whether Starr has
direct standing under Delaware law to pursue the Equity
Claims despite their derivative character. Finally, we
consider several alternative theories of direct standing that
Starr submits, including theories under federal law.

1

First,
we observe that Starr does not appear to meaningfully
distinguish among the various Equity Claims for purposes of
standing. Rather, Starr generally characterizes the Equity
Claims as alleging "the wrongful expropriation of [its]
economic and voting interests in AIG for the Government's
own corresponding benefit." Appellant's Resp. &
Reply Br. 22. Because Starr has the burden of demonstrating
standing and relies primarily on this theory of harm, we do
too. See FW/PBS, Inc. v. City of Dallas, 493 U.S.
215, 231 (1990) ("[S]tanding cannot be inferred
argumentatively from averments in the pleadings."
(internal quotation marks omitted)).

Second,
we address Starr's argument that its case for direct
standing is particularly compelling because the
Government's acquisition of newly issued equity should be
equated with a physical exaction of stock directly from AIG
shareholders. Specifically, Starr urges us to view the equity
acquisition as being "indistinguishable from a physical
seizure of four out of every five shares of
[shareholders'] stock." Appellant's Resp. &
Reply 24-25. To do otherwise, Starr submits, would be to
"elevate form over substance." Id. at 24.

We
decline Starr's invitation to view the challenged conduct
as it wishes. There is a material difference between a new
issuance of equity and a transfer of existing stock from one
party to another. Newly issued equity necessarily results in
"an equal dilution of the economic value and voting
power of each of the corporation's outstanding
shares." Rossette, 906 A.2d at 100. In
contrast, a transfer of existing stock creates an individual
relationship between the transferor and the transferee.
Equating AIG's issuance of new equity with a direct
exaction from shareholders would largely presuppose the
search for a direct and individual injury-e.g., the
"separate harm" that results from "an
extraction from the public shareholders and a redistribution
to the controlling shareholder, of a portion of the economic
value and voting power embodied in the minority
interest." Id. We therefore do not equate the
Government's acquisition of equity with a physical
seizure of Starr's stock.

2

Having
addressed the threshold issues above, we turn to Starr's
primary argument for standing. Starr submits, as the Claims
Court decided at the pleading stage, that the Equity Claims
fall within a "dual-nature" exception under
Delaware law.

This
dual-nature exception recognizes that certain shareholder
claims may be "both derivative and direct in
character." Rossette, 906 A.2d at 99. This
exception addresses circumstances when a "reduction in
[the] economic value and voting power affected the minority
stockholders uniquely, and the corresponding benefit to the
controlling stockholder was the product of a breach of the
duty of loyalty well recognized in other forms of
self-dealing transactions." Id. at 102.
Accordingly, shareholder claims are both derivative and
direct under Delaware law when two criteria are met:
"(1) a stockholder having majority or effective control
causes the corporation to issue 'excessive' shares of
its stock in exchange for assets of the controlling
stockholder that have a lesser value, " and "(2)
the exchange causes an increase in the percentage of the
outstanding shares owned by the controlling stockholder, and
a corresponding decrease in the share percentage owned by the
public (minority) shareholders." Id. at 100;
see also Gatz v. Ponsoldt,925 A.2d 1265, 1278 (Del.
2007) (same).

Starr
argues that the Equity Claims fall within the dual-nature
exception because the Government-though not a majority
stockholder when it acquired AIG equity- was the
"controlling" party that caused terms of the §
13(3) loan to be unduly favorable to itself, at the expense
of AIG shareholders. To establish "control" at the
time of the equity acquisition, Starr relies on the trial
court's finding that the Government, "as lender of
last resort, " used "a complete mismatch of
negotiating leverage" to "force AIG to accept
whatever punitive terms were proposed" for the §
13(3) loan. Starr VI, 121 Fed.Cl. at 435. The trial
court found that the Government had "control" in
this sense starting from September 16, 2008 (the date of the
Term Sheet). Id. at 447-48. We assume, without
deciding, that the Government had such leverage over AIG as
of that date.

Starr's
emphasis on such leverage, however, misses the mark under the
dual-nature exception's requirement for "majority or
effective control." The dual-nature exception stems from
a concern about the "condonation of fiduciary
misconduct" at the expense of minority shareholders.
Rossette, 906 A.2d at 102; see also Feldman v.
Cutaia,956 A.2d 644, 657 (Del. Ch. 2007) ("[I]t is
clear from [Rossette and Gatz] that the
Delaware Supreme Court intended to confine the scope of its
rulings to only those situations where a controlling
stockholder exists. Indeed, any other interpretation would
swallow the general rule that equity dilution claims are
solely derivative . . . ."). Although
"control" does not necessarily require the
self-dealing party to be a pre-existing majority stockholder,
Delaware case law has consistently held that a party has
control only if it acts as a fiduciary, such as a majority
stockholder or insider director, or actually exercises
direction over the business and affairs of the corporation.
See Feldman, 956 A.2d at 657 (stating the
"well-established test for a controlling stockholder
under Delaware law"); Gilbert v. El Paso Co.,490 A.2d 1050, 1055 (Del. Ch. 1984) (stating that a minority
shareholder may have "control" through an
"actual exercise of direction over corporate
conduct"); see, e.g., Gatz, 925 A.2d at 1280-81
(requiring a "fiduciary [who] exercises its control over
the corporate machinery to cause an expropriation of economic
value and voting power from the public shareholders");
In re Tri-Star Pictures, Inc.,634 A.2d 319, 329-30
(Del. 1993) (considering whether there was "a fiduciary
relationship" before determining if shareholders
suffered individual harm); Carsanaro v. Bloodhound
Techs., Inc.,65 A.3d 618, 658 (Del. Ch. 2013)
(extending the rationale for the dual-nature exception to
"non-controller issuances" caused by
"insider[]" directors owing fiduciary duties to
shareholders).

Outside
third parties with leverage over a transaction, even in a
take-it-or-leave-it scenario, do not necessarily have a
responsibility to protect the interests of a counterparty,
less so the interests of a counterparty's constituents.
Starr has not shown that the Government, through its alleged
leverage, owed any fiduciary duties to Starr at the time of
the equity acquisition. Cf. In re J.P. Morgan Chase &
Co. S'holder Litig.,906 A.2d 766, 774-75 (Del.
2006) (observing that the dual-nature exception has "no
application . . . where the entity benefiting from the
allegedly diluting transaction ... is a third party rather
than an existing significant or controlling stockholder"
(alterations in original) (internal quotation marks
omitted)). Nor has Starr sufficiently shown that the
Government actually exercised direction over AIG's
corporate conduct, even assuming that the AIG Board was faced
with a dire dilemma between accepting a § 13(3) loan or
filing for bankruptcy. While there of course may be instances
in which the Government does exercise the requisite
"control, " the circumstances here do not arise to
that level.

The
Claims Court nevertheless found the Government to be
"sufficiently analogous" to a party owing fiduciary
duties to AIG shareholders. Starr II, 106 Fed.Cl. at
65. It reasoned that the Government had a "preexisting
duty" to AIG shareholders under the Fifth Amendment not
to take private property for public use without paying just
compensation." Id. Although Starr similarly
argues that the Government had a "duty" under the
Fifth Amendment, which we address in more detail below, it
does not expressly defend the trial court's analogy
equating the Government's role to that of a corporate
fiduciary for purposes of the dual-nature exception.
See Appellant's Resp. & Reply Br. 26-29;
Oral Argument 6:50-6:53. Starr does not provide any
controlling authority that would support the analogy. And we
see no rationale to support it.

Therefore,
Starr has not demonstrated that it has direct standing to
pursue the Equity Claims by virtue of the ...

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